Hawkeye Securities Fire Insurance v. Central Trust Co.

227 N.W. 637, 210 Iowa 284

• Court: Supreme Court of Iowa
• Decided: November 21, 1929
• Docket: No. 39270.
• Status: Published

Opinions

Stevens, J.

I. This action is brought in equity, to compel the specific performance of an alleged written agreement to repurchase a certain note and mortgage negotiated by appellant to appellee on. November 6, 1919. The alleged agreement, written upon the stationery of appellant, and signed "Taylor Grimes, Vice President-Loans,” is as follows:

"We have this day sold to your company a certain farm mortgage, signed and executed by Milo D. Morse and wife, Cecile Morse, dated October 1st, 1915, for $8,000.00— secured by 160 acres of land in Mower County, Minn., described as the Northeast Quarter of Section 10, Township 102, Range 14. Said note secured thereby drawing your company 5%% interest. In consideration of the purchase of this mortgage by your company, the Central Trust Company agrees to collect all interest and remit to your company, without charge and generally look after the loan the same as if our own. We further agree in the case this mortgage is ever foreclosed for nonpayment that we will repurchase mortgage for its face value plus all interest ’ and costs on same; said mortgage being recorded in book 51, page 60, of the records of Mower County, Minnesota.”

Default having been made in the payment of the note and interest, according to its terms appellee tendered the instrument back to appellant, and demanded performance, of the alleged agreement to repurchase. Subsequently, appellee foreclosed the mortgage, and caused the land to be sold, and the title acquired in the name of the appellee. Thereupon, a deed, executed by appellee, was tendered to appellant, and a new demand made for the specific performance of the contract. The demand was refused, and this action followed.

The defenses interposed by appellant are: (a) That the vice president exceeded his authority in the execution of the written instrument; (b) that it is ultra vires; and (e) that the agreement was waived and abrogated by the subsequent conduct of the plaintiff, and cannot thereby be specifically enforced. To these propositions appellee set up ratification and estoppel.

The law applicable to transactions by agents in which their authority to conduct same, as well as the law relating to alleged ultra vires contracts of corporations, is well settled in this and most jurisdictions. It is the contention of appellee that the consideration for the purchase of the note and mortgage was in part the agreement on the part of appellant to repurchase the same; that, when appellant was apprised of the transaction, and performance demanded, the matter was referred to the executive committee and board of directors of appellant corporation, and that, with full knowledge of all of the facts touching the transaction, they elected to retain the amount paid, and refused to carry out the contract; and that, by such refusal, the act of the vice president was, fully ratified and confirmed.

If the right to make the alleged agreement to repurchase is not void because it is prohibited by law or is contrary to public policy, then the contention of appellee, if sustained by the evidence, that appellant, by the acts of its executive committee and board of directors, ratified .and confirmed the contract, is sound. It has been many times held by this court that a. corporation may ratify an ultra vires act so as to bind itself, when it has received and retains benefits on account thereof. Bobzin v. Gould Balance Valve Co., 140 Iowa 744; Iowa Drug Co. v. Souers, 139 Iowa 72; State ex rel. Carroll v. Corning Sav. Bank, 139 Iowa 338; Bankers Mut. Cas. Co. v. First Nat. Bank, 131 Iowa 456; Vermont Farm Mach. Co. v. De Sota Co-op. Cream. Co., 145 Iowa 491; Garrison Can. Co. v. Stanley, 133 Iowa 57; Twiss v. Guaranty Life Assn., 87 Iowa 733; Traer v. Lucas Prospecting Co., 124 Iowa 107; Fidelity Ins. Co. v. German Sav. Bank, 127 Iowa 591; Field v. Eastern Bldg. & Loan Assn., 117 Iowa 185; Wisconsin Lbr. Co. v. Greene & Western Tel. Co., 127 Iowa 350. See, also, 3 Fletcher’s Cyclopedia of Corporations, Sections 1543—1547.

The exceptions universally recognized to the foregoing rule are that, when the contract is prohibited by statute, or is against public policy, it cannot be ratified.

The scope of the business of appellant, as stated in its articles of incorporation, is as follows:

“To loan money, to buy, own, improve, rent, exchange, sell or otherwise deal in and handle real estate and personal property for pecuniary profit; to loan money on real estate and personal property; to buy, sell, hold and deal generally in notes, mortgages, bonds, securities and other evidences of indebtedness; * * *. It shall also have the power to issue and sell the debentures or bonds of the company and receive time deposits and issue drafts on its depositories. * * * It shall also have the further and additional powers which may at any time be granted by the legislature of the state of Iowa, or which may at any time be given by law to companies of like nature.”

Section 9222, Code, 1927 (Section 1855, Code of 1897), provides that state and savings banks may contract indebtedness or liability for necessary expenses in managing and conducting their business, for deposits, and to pay depositors; provided that, in pursuance to the order of the board of directors previously adopted, other liabilities not exceeding in amount the capital stock of the corporation, may be incurred.

Section 9284, Code, 1927, authorizes trust companies and state and savings banks existing under the provisions of Chapter 416 of the Code, in addition to all other powers granted, when authorized by their articles of incorporation, “to issue drafts upon depositories, and to purchase, invest in, and sell promissory notes, bills of exchange, bonds, mortgages, and other securities.”

We find nothing in the statute which prohibited the appellant corporation from entering into the contract in question. If, therefore, the execution thereof was previously authorized or subsequently ratified, with full knowledge by appellant of the facts, then, under the authorities cited, it is bound thereby, unless the agreement was void because contrary to public policy. It seems to us that the authority conferred upon appellant by its articles of incorporation, considered in the light of the statute, effectively disposes of appellant’s contention that the agreement is void because contrary to public policy. The power to buy, sell, and deal generally in notes, mortgages, bonds, securities, and other evidences of indebtedness, it seems to us, might be held to include the incidental power on the part of the corporation to guarantee the payment of negotiable instruments sold, as well as to make agreements to repurchase the same. It is unnecessary for us to pass on this question in this case.

In a discussion based upon Section 1850, Code, 1897, re lating to savings banks, we said, in State ex rel. Carroll v. Corning Sav. Bank, supra:

“* * * the design in enacting the section of the statute first quoted seems to have been to obviate any doubt as to the power of savings banks to engage in the general banking business, restricted only by such limitations as appear to have been thought essential to the preservation of the beneficial features of the early savings banks, and especially those calculated to shield savings placed in their keeping from exploitation and loss. Having authority to deal in commercial paper, they necessarily must assume the obligation incidental thereto, and among these are those of guaranty and indorsement in transferring the same.”

Appellant cites two decisions of the Supreme Court of Minnesota to sustain the contention that the agreement is void because contrary to public policy. The decision of this court in Engen v. Sheridan County State Bank, 163 Minn. 1 (203 N. W. 434), was rested upon the finding there made that the agreement, which was similar to the one in controversy, created a mere option, and that, as the same was not accepted, no recovery could be had. The other case cited by counsel is Eberlein v. Stockyards Mtg. & Tr. Co., 164 Minn. 323 (204 N. W. 961). The point decided in that ease was that the officers of the trust company did not, solely because they had authority to buy securities for the company, possess implied authority to agree to repurchase a negotiable instrument on demand at its face value. The court there held that power to make a contract of repurchase was not necessarily incident thereto. The court further, in the course of its decision, said that implied authority to do the unusual and unnecessary things involved would not be upheld, in part, because of its inherent danger to the safety and stability of the corporation.

In a later case, not cited by appellant, the Minnesota Supreme Court, in Farmers & Mech. Sav. Bank v. Crookston State Bank, 169 Minn. 249 (210 N. W. 998), went further, and held that an agreement by the bank to repurchase a negotiable instrument in which the only interest of the bank was a small commission received on the transaction was void, because contrary to public policy. The court, however, held that its conclusion was not out of harmony with the recognized authority of a bank to guarantee the payment of a note, upon the negotiation thereof. The court said:

“In making such a guaranty a bank is within its corporate powers, however bad its policy may be in guaranteeing longtime mortgages. ’ ’ '

It will be observed that none of the cited cases support appellant’s contention, under the facts of this case, that the agreement in question is void because contrary to public policy. We are of the opinion that it should not be so treated.

II. We come now to what seems to us to be the decisive question in the case.

If it be granted that the vice president, as agent for the corporation, had neither express nor implied authority to bind it by the writing in evidence, did the corporation, its principal, with full knowledge of the facts, subsequently ratify the agreement, and by retaining the consideration paid by appellee in the transaction, estop itself from setting up either its claim of ultra vires or the want of authority on the part of its agent to enter'into the agreement? It is suggested by counsel for appellant, in argument, that the transaction, so far as it involved the alleged agreement to repurchase, was concealed from the corporation for many years, and until a complete change in conditions - had intervened, and that upon no principle of equity was appellant obligated to return the consideration and accept the tender of either the note and mortgage or the deed.

On this point it is further argued by counsel that the agreement is too ambiguous and uncertain in its terms to permit of enforced specific performance; that appellant was not bound to accept a deed to the mortgaged premises in lieu of the note and mortgage; that the consideration paid by appellee was not in cash, but in other securities, which appellant was no longer able to return. The appellee did tender the note and mortgage to appellant when demand was first made for the repurchase thereof, but this tender has not been kept good. The remedy does- not require proof of the restoration of the status quo, as the relief sought is specific performance, and not rescission. It is immaterial that appellant is no longer able to return the cash or securities received for the note and mortgage, nor, indeed, would appellee be compelled to accept the same, if - tendered. The agreement to repurchase on its face implied payment in cash. The language of the instrument is not as clear as it might easily have been made, but the agreement to repurchase is in case of foreclosure. If foreclosure of the mortgage was contemplated, appellant was bound to accept whatever was received as a result thereof. The foreclosure of the mortgage was by notice and sale, and no judgment was obtained against the makers of the note. The land was bid in for the amount of the claim, plus other items properly included therein. Full disclosure of the transaction and of the repurchase agreement was made to appellant at the time the tender was first made of the note and mortgage and the repurchase thereof demanded. The action of the executive committee and the board of trustees followed these disclosures. The action taken was in the light thereof. Under the authorities cited above, appellant could not retain the benefits and escape the obligation of the written contract upon the ground that its agent exceeded its authority, or that the contract was ultra vires. It was estopped to urge either as a defense to this action. It could not deny the authority of the agent and at the same time claim the benefits of the transaction. This is elementary in the law of principal and agent.

Other matters are discussed by counsel, but they are disposed of by what we have already said, and do not call for particular consideration. The conclusion reached necessarily involves the consideration of all matters urged by appellant.

III. The suggestion is made that a receiver has been appointed, who has taken charge of the business and assets of appellant, and that for this reason this action will not lie. The receiver was appointed some months after the action was commenced. It was not abated by the appointment thereof. Weigen v. Council Bluffs Ins. Co., 104 Iowa 410.

We reach the conclusion that the judgment and decree of the court below is right, and it is, therefore, — Affirmed.

Albert, C. J., and Faville, Kindig, and Grimm, JJ., concur. Evans, J., took no part in the decision of this case. Morling, De Graff, and Wagner, JJ., dissent.